The US Federal debt has been accumulating at a high rate, which is seen as a boon for Bitcoin and often seen as a hedge against inflation.
The US Public debt was $23 trillion in 2019 and increased to $33 trillion in 2023. During the same period, Bitcoin’s supply increased slightly.
The market capitalization for the largest cryptocurrency by market cap increased from $193 billion in 2019 to around $1 trillion by the end of 2023.
According to the VP of Research at Riot Platforms, Pierre Rochard, these numbers proved that Bitcoin was not the bubble. Instead, the rate at which the US public debt was increasing posed a concern to the public, as it could signal a poor economic state lay ahead.
The analyst’s remarks seek to solidify the analogy that Bitcoin is a hedge against inflation. The largest crypto has long been seen as a hedge against a depreciating currency.
US Debt Piles Up
According to a report by the Financial Times, the US financial market was at risk of suffering from the same market shock seen in the UK that led to the resignation of Liz Truss in 2022.
The director of the Congressional Budget Office, Phillip Swagel, told the Financial Times that the US faced a danger where the market reacts to policymakers’ actions. While the US economy was not yet there, increasing interest rates will increase the cost of paying its creditors to $1 trillion in 2026, causing bond markets to “snap back.”
The US Federal Reserve increased interest rates aggressively last year. The increase was attributed to skyrocketing inflation. In its recent Federal Open Market Committee meeting, policymakers acknowledged that inflation was back to manageable levels. Therefore, the Fed plans to start trimming rates again this year.
According to regulators, the US federal debt increased by 97% to $26.2 trillion of the gross domestic product by the end of last year. The November elections might also influence the trajectory that the public debt will take, as Presidential Candidate Donald Trump plans to renew tax cuts if elected.
Rising US debt is also posing concerns among other analysts. Last year, Fitch removed its triple-A rating for the US, saying there were concerns about the high and ballooning government debt burden. However, it has since restored this rating.
Bitcoin Trades at Record Highs
Bitcoin has an inverse relationship with the US economy as it is seen as a hedge against inflation. After a poor performance in 2023, Bitcoin has posted a major comeback in 2024. Last month, it clinched an all-time high of $73,000.
The decision of the Federal Reserve to stop further rate hikes and possibly trim rates this year is increasing the appetite for risk assets.
Bitcoin has also outperformed most financial assets this year, drawing interest from institutional investors. The launch of a spot Bitcoin exchange-traded fund (ETF) by Wall Street giants BlackRock and Fidelity is driving these gains.
